The Commonwealth Bank of Australia (ASX: CBA) share price has risen rapidly in recent years, stretching its valuation.
The Commonwealth Bank of Australia Share Price
As can be seen, it's been one helluva ride for Commbank shareholders over the past decade. Since the depths of the Global Financial Crisis (GFC) the CBA share price is up 240%. Going back further, CBA shares traded for just $6(!) in the early 90's.
Is CBA too expensive?
I have said that the current CBA share price makes its valuation a little too demanding for my liking. Undoubtedly, it is a great business, but no business is worth an infinite price — indeed, the price must 'make sense', as one of my favourite investors would say.
At today's levels, CBA shares trade at a significant valuation premium to that its peers, like National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC); and the broader market, or S&P/ASX 200 (ASX: XJO) (INDEX: AXJO).
However, closer to $70, I would consider buying CBA shares. Why?
I think CBA is a well-run business in an enviable position as Australia's top bank. With rising prosperity, the bank appears well-placed to deliver modest long-term growth to investors.
Having said that, there are a number of risks facing the bank. For example, a housing market correction — however unlikely — is the most obvious risk. That would hurt the entire financial system, but CBA is directly exposed.
Another short-term risk is the increasing regulation of banks. Although it is a positive for financial markets overall, more regulation could negatively affect shareholder returns.
Finally, technological disruption is a threat to all banks. CBA has done a better job than any of Australia's banks in developing its technology solutions. However, many financial technology companies are also looking to break into the banking sector.
Buy, Hold or Sell
CBA shares are a 'hold' in my book. With a dividend and modest growth, I'd be reluctant to sell shares unless my portfolio was overexposed to the banking sector. Therefore, so long as something bad doesn't happen, I'd consider buying CBA shares closer to or below $70.
